There is Absolutely NO Reward for Loyalty!
Updated: Mar 10
How long have you been with your current insurance company? Is it more than one year, five years, or ten years and beyond? When was the last time you did a cost comparison insurance quote? When last did you sit down with your insurance agent to go over your coverages to see if you are adequately covered? If you have not met with your current insurance agent, I strongly suggest you do so! Furthermore, I urge you to get quotes from other carriers to see if you have the best rates and how much money you overpay for your current auto insurance policy.
Have you heard of "Price Optimization?" Probably not, and the insurance company hopes you never hear of that term! So, what precisely is Price Optimization?
To keep it simple – There is NO reward for loyalty! Let that statement sink in a while because that negates everything we have been told, learned, and heard. Why your auto insurer will not hesitate to charge you higher premiums for not shopping around due to Price Optimization.
Royalty - Loyalty
Most consumers assume that auto insurers will treat you like royalty for your loyalty if you stay with the same company and keep a claims-free record and your premiums will steadily go down is the prevailing theory. But data shows and experts contend that the opposite can happen more often than you would like or think.
It's a tactic called "price optimization," and auto insurers big and small engage in this practice legally. Put into laypeople's terms, price optimization is the practice of raising your individual premium based on the likelihood of you NOT shopping around for another policy with a different insurer. So being with the same insurance company for many years might not be in your best interest.
Maximize Your Returns
Insurance carriers seek to maximize their returns at the expense of you, the consumer. To squeeze more profit out of policies, they often charge higher rates. The longer you are a "loyal" customer, the more confident the insurance carrier is that you will not abandon the ship. For a vast majority of customers, a hundred dollar increase in premiums, for example, basically isn't enough to compel anyone to switch. However, when you factor in the years that you have been with the same insurance carrier and the bi-annual (or annual) increases, you can do the math and determine how much premium the carrier charged. Make sure you are sitting down when you calculate this. You will be shocked what you find! The money they charged you over the years adds up to a significant amount of money! That is pure profit for the insurance carrier!
So What Can You, the Consumer Do?
To prevent yourself from getting "price optimized," it's essential to remain engaged and well-educated consumers. "Shop, Shop, Shop." It is always in your best interest to shop around for auto insurance since prices vary widely for the same coverages. But now, it is even more essential. If your insurer sees that you shop, they will not "price optimize" you, and you will save money in the process.
Tips for Saving Money
For best results, try these tips designed to minimize your chance of being price optimized:
Don't switch for minimum savings or too frequently. It will cost you in the long run. Only switch if the savings are substantial — at least 10% to 15%. Keep in mind that the insurance carriers will penalize customers who move to a different insurance company every year.
Evaluate your risk before you bolt. Remaining with your current insurer can be a better deal if your risks to them have recently increased (such as having a lower credit score or a long commute through a bad neighborhood); their underwriting may not be aware of these increased risks, but a new carrier will undoubtedly identify them and quote you higher rates accordingly.
Bundle home and auto insurance policies with the same agent and company.
Purchase higher liability limits, reducing your odds of being price optimized.
If possible, pay in one lump sum annual installment if possible and set your policy to auto-renew without letting it cancel — two tactics that can also lower your price optimization likelihood.
Consider choosing an independent insurance agent representing multiple insurance companies that offer various rates and coverage limits.
When you have a captive insurance agent or buy directly from an insurer, they only represent their product, not multiple products. If their rates go up, they cannot shop for better rates on your behalf!